Zuckerberg Is Going to Be Right on VR

Many investors have written off VR as a niche platform destined to a similar failed outcome as 3D television. Conversely, Zuckerberg has been steadfast in his belief in the transformative power of VR, as evidenced by Facebook’s continued investments into the theme. Our view is that Zuckerberg will be proved right, as VR slowly becomes a cornerstone of how we play, work, and socialize. As a result, Facebook will likely emerge as the winner of a significant VR opportunity over the long term.

VR usage steps up during pandemic

Not surprisingly, we are seeing an increase in VR usage over the past two months as consumers pursue out of home experiences. On the hardware side, Oculus can’t keep up with demand. We’ve observed that since last November, Facebook sells out of Oculus Quest (the flagship headset) within hours of getting them back in stock. Current lead-times have now extended to 3-5 weeks on Amazon.

Zuckerberg’s next computing platform view now makes more sense

Facebook’s support of VR comes from the top. At last September’s OC6 conference, Zuckerberg laid out that VR will be a platform for powerful social and work use cases in addition to gaming. In January, for example, Zuckerberg hinted at a future of work where companies will have offices in VR, no longer bound by geographic expenses and talent access limitations. We see VR as a key component to enable work from home and allow companies to build and maintain culture.

Headset adoption nascent and growing

There is limited data on the number of VR headsets that have been sold. Sony has announced they have shipped 5m+ PSVRs since 2016, and Oculus does not report numbers. This compares to an installed base of gaming consoles of about 200m worldwide (PlayStation at 110m, Nintendo Switch at 50m and Xbox at 40m). Bloomberg has reported Oculus is developing a new Quest HMD that could arrive sometime in the next 12 months. We believe that the current Oculus Quest is just a few steps away in form-factor, performance, and content from unlocking material growth in VR adoption. If Oculus can solve for these variables, particularly content, in its next generation of HMDs, we expect an uptick in investor and big tech attention to VR as a viable and important platform to be playing in.

Apple’s VR ambitions less clear

This week Apple confirmed their purchase of NextVR, a 360-degree broadcasting and sports producer for content to be viewed on mobile phones and head-mounted displays (HMD) including PlayStation VR and Oculus Rift. Our belief is Apple paid less than $50m, compared to the $115m the company raised since it started in 2009. We believe Apple purchased NextVR for its partnerships, talent, and IP related to video capture. While Apple orbits around the VR theme, the substance of the company’s next computing platform efforts continues to be behind AR.